The United States may realise modest economic benefits through the implementation of uniform tariffs across all trade partners, according to new research led by Ina Simonovska, an economist at the University of California, Davis. However, the study also highlights that the intricate realities of global supply chains, international trade networks, and downstream economic repercussions could significantly undercut those benefits—and in some scenarios, result in considerable economic losses.

Simonovska, who also holds a senior associate position at the Center for Strategic and International Studies, describes recent U.S. tariff policies—most notably those introduced during the Trump administration—as a bold experiment in economic strategy. Her paper, titled “Making America Great Again? The Economic Impacts of Liberation Day Tariffs,” was published this week in the Journal of International Economics. The research analyses the proposed “Liberation Day” tariff schedule, announced in April, along with multiple trade war scenarios involving key global partners. It also evaluates the outcomes of a theoretically optimal unilateral tariff regime, with particular focus on effects on consumer welfare, trade balances, employment, and pricing.

Using a global economic model that accounts for trade and supply chain interdependencies, the authors found that a flat tariff of 12.5% on all imports could, in the best-case scenario, reduce the U.S. trade deficit by 13% and improve overall economic welfare by up to 2.15%. Yet, these projected gains rest on the assumption that trade partners do not retaliate. In reality, Simonovska warns, retaliation would nullify any improvements and potentially trigger broader economic harm. The complexity of modern supply chains—where production, assembly, and sourcing are spread across numerous countries—means that tariffs can easily disrupt entire industries.

The study emphasises that these kinds of tariffs often yield gains through what economists call a “beggar thy neighbour” strategy—achieving domestic gains at the expense of foreign economies. Smaller trade partners such as Mexico, Canada, Ireland, and certain Southeast Asian nations are particularly vulnerable, as their economic output is more heavily dependent on exports to the United States. Such imbalanced consequences may also strain diplomatic relations, with trading partners exploring ways to diversify away from U.S. markets and forge new alliances elsewhere.

Although the U.S. administration has framed tariffs as a fiscal tool capable of funding government initiatives and addressing deficits, researchers caution that the reality is less promising. While tariff revenue could constitute up to 5% of the federal budget, these revenues would only deliver long-term benefits if strategically reinvested, for example, by replacing economically inefficient labour income taxes. However, the paper warns that policies involving direct cash transfers to households, which the administration has floated, would neutralise these potential benefits.

Finally, the research underscores the regressive impact of tariffs, particularly on low-income households that allocate a higher proportion of their earnings to tradable goods. These groups bear the brunt of price increases, undermining policy narratives aimed at protecting working-class Americans. In addition, sectors heavily reliant on imports—especially those where domestic alternatives are limited—are likely to struggle. Small and medium-sized businesses, in particular, lack the financial flexibility and logistical capacity to absorb rising costs, placing them at a disadvantage compared to larger, more resilient competitors.

More information: Anna Ignatenko et al, Making America great again? The economic impacts of liberation day tariffs, Journal of International Economics. DOI: 10.1016/j.jinteco.2025.104138

Journal information: Journal of International Economics Provided by University of California – Davis